Upsurge in Interest in Mortgage Wraps, All-Inclusive Trust Deeds (AITD) in Temecula Valley California

Upsurge in Interest in Mortgage Wraps, All-Inclusive Trust Deeds (AITD) in Temecula Valley California

Disclaimer: I am not an attorney, don’t play one on tv, and I haven’t stayed at a Holiday Inn in decades. This is a blog and the following is my professional opinion only. Any legal questions about mortgage wraps should be directed to a licensed, qualified attorney, keeping in mind that like real estate agents, not all attorneys are equal.

Down markets in real estate seem to bring out “short cuts”, “scams” and other methods of selling real estate that may be legal, but not in the best interests of home buyers or sellers.

Jeff Pearl, an agent in Leesburg, Virginia, posted on his blog, “Mortgage Wraps Instead of Short Sales – Good or Bad? – Legal or Not?”, which inspired me to write this post.

Lately there has been an upsurge in interest in mortgage wraps, or all-inclusive trust deeds in Temecula Valley California. Because of the real estate market crash, many people have bad credit and cannot qualify for a mortgage loan. They have the income to pay rent, and with current, low housing prices, a mortgage.

Recently a potential home buyer approached me about a mortgage wrap, or AITD. Her landlord wants to sell his home to her, and she wants to buy it. My first question was had she spoken to a mortgage lender to see if she qualified for a mortgage loan?

She is a small business owner and has the income to support herself and her children, but doesn’t qualify for a mortgage loan because of divorce, bankruptcy, defaulted on mortgage with ex-spouse, and is co-borrower on a mortgage with her ex that has been modified, or re-cast. The mortgage wrap, or AITD, seems like the perfect solution.

Mortgage Wraps and AITD’s are legal, but it is broker recommended that both buyer and seller get legal advice before going forward with a home sale using a mortgage wrap.

My opinion is there are too many risks. In this case, seller has a mortgage loan and is not underwater—he has equity. When I requested recorded documents from a reputable title company, the recorded Deed of Trust has a paragraph that basically says “any subordinate lien must be approved in writing by the lender.”

A mortgage wrap, or AITD, would become a subordinate lien because the transaction must go through escrow. Unless the lender agrees to the AITD in writing, this could be a problem, because there is also a “due on sale” clause in the Deed of Trust. If there were to be a subordinate lien without lender’s approval, the lender could then call the note, and demand full payment. If the demand is not paid, lender could foreclose. Seller would then lose his equity and buyer would be out.

Would the seller’s lender agree to an AITD?

My first response is no, the lender would not agree to it. Seller has equity. He can sell his home in a standard sale to a qualified buyer, who has either cash to pay, or can take out a mortgage. There would be no reason for the lender to agree to it.

I believe this seller is probably a good person who wants to sell his home and help out his tenant at the same time. If the seller didn’t have a mortgage and owned the property free and clear, then he could sell back to his tenant, using a lease/option purchase.

Disclaimer: Broker recommended both buyer and seller get legal advice before going forward with a lease/option purchase.

My recommendation to this buyer is to rebuild her credit and save some money. There are mortgage brokers and lenders who are happy to help those with less-than-stellar credit on how to get back on track. Soon she will be able to qualify for a mortgage loan.

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As a Temecula short sale agent, I work with lenders to negotiate short payoff for borrowers to sell their home in a short sale. The choice for a lender to agree and approve a short sale is entirely up to the lender. The good news is lenders do approve short sales in Temecula Valley California because it does save them money from foreclosing.  

If you would like to know more about Temecula short sales, please contact me direct 951.491.4063.